By Terry Baynes

(Reuters) - The Supreme Court on Monday will hear arguments in a case that could determine when a company is liable for harassment by its employees.

The case turns on the definition of a single word - "supervisor" - under a federal civil rights law that prohibits racial, religious or sexual harassment in the workplace.

Under previous Supreme Court rulings, an employer is automatically responsible if a supervisor harasses a subordinate. The employer is not liable if the harassment is between two equal coworkers, unless it was negligent in allowing the abuse.

Since those rulings, a rift has developed between federal appeals courts over exactly who is a supervisor. On one side, three circuits say supervisors are those with the power to hire, fire, demote, promote or discipline. Three other circuits have adopted a broader standard, one that also includes employees who direct and oversee a colleague's daily work.

In the current case, Maetta Vance was the sole black catering worker at Ball State University in Muncie, Indiana. After filing numerous complaints with the university over racially charged incidents at work, she sued the university in federal court in 2006. She claimed that several white coworkers used racial epithets, references to the Ku Klux Klan and veiled physical threats against her.

In trying to hold Ball State liable, Vance's lawyers argued that one coworker, Saundra Davis, was a supervisor because she had the power to direct her day-to-day activities. Davis did not have to record her time, like other hourly employees, Vance argued. But the district court dismissed the case before a trial, finding Davis lacked sufficient authority over Vance. It also found that Ball State had taken corrective action and had not acted negligently.

The 7th U.S. Circuit Court of Appeals, in Chicago, reached the same conclusion, reasoning that Davis did not have the power to change Vance's employment status, and therefore the university was not liable for Davis's conduct.

Vance petitioned the Supreme Court.

Before deciding whether to hear the case, the Supreme Court asked the Justice Department for the government's position, as it does in some cases. U.S. Solicitor General Donald Verrilli agreed with Vance that the 7th Circuit's narrow interpretation was wrong, but also argued that this wasn't the best case to decide the issue, given what it saw as weak facts that Davis was Vance's supervisor. Vance presented no evidence of tasks or instructions Davis gave her and even said she was uncertain whether Davis was her supervisor, the government's brief said.

The Supreme Court accepted the case anyway.

Ball State has made the same argument as the government. Davis "would fail to qualify as Ms. Vance's supervisor even under the broader interpretation of that term applied by certain courts of appeals," university spokesman Tony Proudfoot said in an email, citing the Solicitor General's brief.

But Daniel Ortiz, a lawyer for Vance, said that under the broader standard there is evidence Davis was a supervisor.

Davis, who Vance believed was her supervisor, "taunted her with racial epithets, slapped her at one point and made her life a living hell," Ortiz said.

Business groups, including the U.S. Chamber of Commerce and the National Federation of Independent Business, have filed briefs supporting the narrow definition of supervisor used by the 7th, 1st and 8th Circuits. Continued...